Course on ProfessionalismSnapper – Case Studies

Version: May 2015

The Latent Error

Mary is an actuary for the Squeaky Clean Insurance Company. Mary has just discovered an error that was contained in the last filing she made in Confused State. This filing, in accordance with regulatory requirements, was approved before implementation. The rates contained in this filing were implemented six months ago.

What, if anything, should Mary do?

The Faulty Rating Plan FilingYou are a recent ACAS with a major personal lines insurer. Several months ago, you filed a new rating plan with State X, and you are having difficulty obtaining approval of the changes from the regulator. You come across an approved competitor filing that implemented a similar rating plan. The filing uses what you believe to be faulty logic. Your boss says “if the logic works, use it!”, and directs you to use that same logic to get your own filing approved.

Do you use this faulty logic in your negotiations with the regulator? If not, do you point out the error in the competitor’s logic to the regulator?

The Subordinate’s Dilemma

Lisa Turnstyle is a new associate working for an FCAS. She recently returned from the CAS Course on Professionalism, having acquired a new appreciation for the importance of the standards of practice. Lisa suddenly realizes that one of her boss’s common practices clearly violates of one of these standards.

What should she do?

The Auto Rate DiscountsYou are an FCAS in charge of annually reviewing indicated discounts for your private passenger automobile rating plan at a major insurance company. This year, you calculated two indicated discounts to be 25% each.

Recently, you attended a generalized linear modeling (GLM) seminar. After your return from the seminar, you used GLM methods and determined that one of the discounts should be 35% and the other should be 0%. Your company has been aggressively marketing the 25% discounts, and has invested a lot of marketing effort and expense.

What, if anything, should you do?

The Insider

Cindy is a partner of a consulting firm that has been hired to assist in the review of a potential acquisition. The Pretty Darn Good (PDG) Insurance Company is being targeted by We R Really Big (WRRB) Insurance Company for acquisition. Cindy signed a confidentiality agreement with WRRB prior to being engaged on this assignment.

After completing her analysis, Cindy has discovered PDG is seriously under-reserved. PDG, however, received a “clean” Statement of Actuarial Opinion from Really Capable Actuaries (RCA) Consulting Firm.

What should Cindy do?

The Outside Reserve Review

As the chief actuary for your company, you annually perform a reserve analysis using appropriate methods. This year, senior management hires an outside consultant to perform the reserve analysis as well.

The consultant’s reserve need estimates are significantly less than your estimate. You believe your results are reasonable, but your management insists that the consulting actuary has more reserving expertise than you, and demands that you lower your estimates.

What, if anything, should you do?

The Proprietary Rating PlanIda Guest, FCAS and MAAA, worked for the Prestigious Insurance Company for 10 years and became a company officer. Ida leaves the company effective July 1 and starts her own, single practitioner, consulting firm.

Just prior to leaving, Ida worked on the development of a new, very innovative automobile rating plan that Prestigious plans to market aggressively to gain a significant competitive advantage. Millions of dollars have already been spent on Prestigious’ advertising campaign, which will kick-off August 1.

On July 15, Ida publishes a paper that explains, in great detail, the fine points of Prestigious’ new rating plan. She is selling these reports for $25,000 each and offers her services to companies who would like to make similar filings. She took no work papers with her when she resigned from Prestigious. She recreated all the material in her paper from her photographic memory.

Is Ida in trouble?

The Peer Review

You are a credentialed actuary who recently joined a small consulting firm. The owner of the firm asks you to peer review an actuarial report for a very important client. She apologizes for the short notice but your review is needed in the next 24 hours.You have limited experience with the lines of business central to the actuarial report.What should you do?

The Coastal Rate Increase

You are the chief actuary at the Insurance Department in the State of Coastal. A major personal lines insurer made a filing that would result in rate increases of 200% along the coastline. After reviewing the data, you agree that the rate increases are justified.

The Insurance Commissioner tells you to disapprove the increase because it would result in rates that are not affordable. Your projections show that without the full 200% rate increase, the insurer may go bankrupt within two years. You have shared this information with the Commissioner, but he still refuses to agree to the large rate increase.

What, if anything, should you do?

The Reinsurance Account

You are an actuarial student with a reinsurer. You have determined an indicated rate on line of 10% for an important account. You know that the reinsurance rates are not regulated in your state and that no filing is required with the state insurance department.You boss reviews your work and tells you that he believes the market will bear a rate on line of 40% and he wants you to help support his position. What, if anything, should you do?

The Gift ListHow should an actuary react to the offer of any one of the following gifts from someone with whom, directly or indirectly, there is a professional and/or business relationship?•A pocket calculator. •Company products valued at $20. What about at $100?•A case of non-vintage wine during the holidays.•Invitation to dinner at an expensive restaurant for the actuary and spouse.•Use of the company condominium in Florida for a week of golfing.

Consider separately the position of:•An actuary employed by a commercial insurance company where the offer comes from a director of the company whose workers compensation insurance is provided by the insurance company and the actuary has some control over the premium level.•A consulting actuary.•An actuary employed as a government regulator.

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